Young & Invested: Why we just upgraded this popular global ETF
Australia’s biggest ETF for hedged international exposure has been upgraded to a Gold Medalist Rating. Here’s why.
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 70
Whether you’ve just begun your investment journey or you’re an experienced investor with an established portfolio, it’s hard not to feel overwhelmed by the constant stream of pitches for ETFs. Before any accusations of irony, I promise I am not here to sell you any of these funds. You do not need ten different funds to be a successful investor.
But in an ever-expanding ETF universe, looking at fund ratings can be a useful tool in helping you understand what you already own (or want to own) rather than giving you an outright ‘good’ or ‘bad’ signal.
Today I’m going to walk through Vanguard MSCI Index International Shares (Hedged) ETF VGAD, why it’s so popular for global exposure and how a renewed outlook with an emphasis on fees now ascribes it a Gold rating.
Vanguard MSCI Index International Shares (Hedged) ETF VGAD
- Total Cost Ratio (prospective): 0.22% p.a.
- Assets Under Management: AUD 7.25 billion (31st May 2026)
- Morningstar Category: Australia Fund Equity World - Currency Hedged
- Morningstar Category Index: Morningstar DM xAU LM NR Hdg AUD (Developed Markets ex-Australia Large-Midcap Net Returns Currency Hedged AUD)
A quick overview
Vanguard MSCI Index International Shares (Hedged) ETF VGAD provides investors with access to a diversified global equities portfolio.
The strategy aims to replicate the AUD-hedged version of the MSCI World ex Australia Index. This collects the top stocks across 22 developed markets until approximately 85% of the investable universe, and weights them by market cap.
A note on currency hedged ETFs
Hedging is simply the process of removing a particular risk from a portfolio. In this case we’re hedging against exchange rate fluctuations.
Investing in global ETFs is one of the easiest ways for Aussies to tap into overseas markets. But we’re not just exposed to the performance of those international companies, we’re also exposed to the movements in the Australian dollar (AUD) and the foreign currency. That means your total return is dependent on both of those things.
If the AUD weakens, your international investment becomes more valuable when converted back. If it strengthens, the opposite occurs, even if the underlying shares performed well.
A simple way we can think about this is to look at how movement can affect your return. Say I invest in an ETF tracking the S&P 500 and over the course of the year, the fund returns 10% in USD. However, during that same period, the US dollar (USD) has fallen 8% relative to the AUD.
With a hedged ETF, the currency movement is neutralised, so my return would be close to 10%. In the unhedged fund, the weaker USD reduces my return by roughly the same amount, leaving my AUD return around 2%. The reverse also applies. If the USD had instead strengthened by 8%, the unhedged return would be higher than the hedged counterpart.
The hedged version theoretically gives investors a ‘pure’ market return, whilst the unhedged offers the market return plus or minus whatever the currency has done along the way. For the sake of simplicity, this example excludes other costs like fund fees, hedging costs, spreads, brokerage etc.
Investor preference
Many fund managers (such as Vanguard) offer two versions of the same fund – an unhedged and hedged version. Investors who wish to control this currency risk may prefer to invest in the hedged version of a fund, hence the popularity of VGAD, the counterpart to another popular ETF, Vanguard MSCI Index International Shares ETF VGS.
Composition and performance
As mentioned above, the AUD-hedged MSCI World ex Australia Index gives investors exposure to large- and mid-cap stocks across 22 developed markets. As of June 2026, this includes 1,241 constituents with around 77% of the portfolio in North American equities.
Performance for VGAD ETF has proved difficult to beat in this category with a trailing 10-year price return of around 13% annualised. Holding a broad basket of opportunities through an index means investors do not miss out when the driver of market returns is concentrated on single sectors or positions.
This has been the case over the past few years with US equities, in particular technology companies, dominating the returns of this fund and the broader market.
Although, the impact of foreign exchange rates tends to wash out over longer time frames. This has led to widely different outcomes between the hedged and unhedged (VGS) versions of this ETF, depending on the relative strength of the Australian dollar.
While this approach might be relatively concentrated in the US technology sector, this is merely a representation of the investable universe. Concerns around concentration are eased by the often diversified business structure of companies within the index that aren’t reliant on a single product, service, or market to determine success.
Why the upgrade to Gold?
The Morningstar Medalist Rating is a forward‑looking assessment of how likely a fund is to outperform on a peer-relative basis. Funds can receive Gold, Silver, Bronze, Neutral, or Negative ratings.
Gold, Silver and Bronze mean that we expect the fund to outperform. Neutral means the odds are roughly balanced and Negative means we believe the fund has meaningful obstacles to delivering competitive long‑term returns.
Our research analysts recently upgraded VGAD ETF from a Silver to Gold Morningstar Medalist Rating due to the effect of fees. A fund’s price point carries significant weight in our overall ratings because of their role as one of the most reliable predictors of future performance.
While currency hedged ETFs help smooth out the impact of exchange-rate movement, their mechanics introduce several additional costs that may erode long-term returns. Hedged versions of broad, passive funds typically charge more than their unhedged counterparts because of the additional cost of maintaining a hedge. VGAD ETF lists a management fee of 0.21% and indirect costs of 0.01% p.a. In comparison, it’s unhedged counterpart VGS lists a management fee of 0.18% p.a.
VGAD’s prospective total cost ratio of 0.22% p.a. places it in the cheapest quintile of its category peers where the median fee is 0.90%. This results in a Price Score of 2.06 which indicates a level of cost competitiveness over other choices in the category. In other words, the funds fee structure is working in your favour.
For passive funds like VGAD, the Morningstar Price Score carries more weight (40%) towards the overall rating, as cost is a major driver of outcomes in index‑tracking strategies.
Overall, we think the strategy stands to be among one of the best choices for global market exposure. Although it is important to note that our fund ratings aren’t intended to be an all-encompassing statement on whether a fund is ‘good’ or ‘bad’.
The rating simply reflects our view that relative to the other options in the category, VGAD has structural advantages (passive management in global markets, cost-efficient availability and broad diversification) that make it more likely to outperform over a full market cycle.
Ultimately, the key to choosing ETFs is to ensure its characteristics align with your goals, risk tolerance, and time horizon.
